Intrinsic value of Fomento Economico Mexicano ADR - FMX

Previous Close

$100.96

  Intrinsic Value

$246.80

stock screener

  Rating & Target

str. buy

+144%

  Value-price divergence*

+4680%

Previous close

$100.96

 
Intrinsic value

$246.80

 
Up/down potential

+144%

 
Rating

str. buy

 
Value-price divergence*

+4680%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of FMX stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 32.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  28.22
  29.70
  27.23
  25.01
  23.01
  21.21
  19.59
  18.13
  16.81
  15.63
  14.57
  13.61
  12.75
  11.98
  11.28
  10.65
  10.09
  9.58
  9.12
  8.71
  8.34
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.60
  6.44
  6.29
  6.16
Revenue, $m
  20,242
  26,254
  33,403
  41,756
  51,362
  62,254
  74,447
  87,941
  102,728
  118,786
  136,093
  154,618
  174,334
  195,212
  217,229
  240,365
  264,607
  289,948
  316,389
  343,939
  372,611
  402,431
  433,429
  465,643
  499,119
  533,909
  570,072
  607,673
  646,784
  687,484
  729,857
Variable operating expenses, $m
 
  23,419
  29,725
  37,092
  45,565
  55,172
  65,926
  77,829
  90,871
  105,035
  120,300
  136,377
  153,766
  172,181
  191,601
  212,007
  233,389
  255,741
  279,063
  303,361
  328,651
  354,953
  382,294
  410,708
  440,234
  470,919
  502,816
  535,981
  570,478
  606,376
  643,750
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  18,561
  23,419
  29,725
  37,092
  45,565
  55,172
  65,926
  77,829
  90,871
  105,035
  120,300
  136,377
  153,766
  172,181
  191,601
  212,007
  233,389
  255,741
  279,063
  303,361
  328,651
  354,953
  382,294
  410,708
  440,234
  470,919
  502,816
  535,981
  570,478
  606,376
  643,750
Operating income, $m
  1,681
  2,835
  3,678
  4,664
  5,797
  7,082
  8,520
  10,112
  11,857
  13,751
  15,793
  18,242
  20,568
  23,031
  25,628
  28,358
  31,218
  34,208
  37,327
  40,577
  43,960
  47,478
  51,135
  54,936
  58,885
  62,989
  67,256
  71,692
  76,306
  81,108
  86,107
EBITDA, $m
  2,376
  3,784
  4,815
  6,019
  7,404
  8,974
  10,731
  12,676
  14,807
  17,122
  19,617
  22,287
  25,129
  28,139
  31,312
  34,647
  38,141
  41,794
  45,605
  49,576
  53,709
  58,008
  62,476
  67,119
  71,945
  76,959
  82,172
  87,592
  93,230
  99,096
  105,204
Interest expense (income), $m
  277
  308
  533
  802
  1,115
  1,476
  1,885
  2,343
  2,850
  3,406
  4,009
  4,659
  5,355
  6,095
  6,880
  7,707
  8,576
  9,486
  10,438
  11,431
  12,466
  13,543
  14,663
  15,828
  17,038
  18,295
  19,602
  20,960
  22,373
  23,842
  25,371
Earnings before tax, $m
  1,447
  2,527
  3,145
  3,862
  4,682
  5,606
  6,635
  7,769
  9,007
  10,346
  11,784
  13,583
  15,213
  16,935
  18,749
  20,651
  22,642
  24,721
  26,889
  29,146
  31,494
  33,935
  36,472
  39,108
  41,847
  44,694
  47,654
  50,732
  53,934
  57,266
  60,736
Tax expense, $m
  400
  682
  849
  1,043
  1,264
  1,514
  1,791
  2,098
  2,432
  2,793
  3,182
  3,667
  4,107
  4,573
  5,062
  5,576
  6,113
  6,675
  7,260
  7,869
  8,503
  9,162
  9,847
  10,559
  11,299
  12,067
  12,867
  13,698
  14,562
  15,462
  16,399
Net income, $m
  1,071
  1,845
  2,296
  2,819
  3,418
  4,092
  4,844
  5,671
  6,575
  7,552
  8,603
  9,915
  11,105
  12,363
  13,686
  15,075
  16,529
  18,046
  19,629
  21,276
  22,990
  24,772
  26,624
  28,549
  30,549
  32,627
  34,787
  37,034
  39,371
  41,804
  44,337

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,217
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  27,645
  32,982
  41,963
  52,457
  64,526
  78,209
  93,526
  110,479
  129,055
  149,229
  170,971
  194,244
  219,012
  245,241
  272,901
  301,966
  332,421
  364,257
  397,474
  432,084
  468,105
  505,567
  544,509
  584,979
  627,034
  670,740
  716,170
  763,408
  812,543
  863,674
  916,906
Adjusted assets (=assets-cash), $m
  25,428
  32,982
  41,963
  52,457
  64,526
  78,209
  93,526
  110,479
  129,055
  149,229
  170,971
  194,244
  219,012
  245,241
  272,901
  301,966
  332,421
  364,257
  397,474
  432,084
  468,105
  505,567
  544,509
  584,979
  627,034
  670,740
  716,170
  763,408
  812,543
  863,674
  916,906
Revenue / Adjusted assets
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
Average production assets, $m
  7,046
  9,136
  11,624
  14,531
  17,874
  21,664
  25,907
  30,604
  35,749
  41,338
  47,360
  53,807
  60,668
  67,934
  75,596
  83,647
  92,083
  100,902
  110,104
  119,691
  129,669
  140,046
  150,833
  162,044
  173,693
  185,800
  198,385
  211,470
  225,081
  239,245
  253,990
Working capital, $m
  1,604
  -315
  -401
  -501
  -616
  -747
  -893
  -1,055
  -1,233
  -1,425
  -1,633
  -1,855
  -2,092
  -2,343
  -2,607
  -2,884
  -3,175
  -3,479
  -3,797
  -4,127
  -4,471
  -4,829
  -5,201
  -5,588
  -5,989
  -6,407
  -6,841
  -7,292
  -7,761
  -8,250
  -8,758
Total debt, $m
  7,059
  11,588
  17,426
  24,247
  32,092
  40,986
  50,942
  61,961
  74,036
  87,149
  101,281
  116,409
  132,508
  149,557
  167,535
  186,428
  206,224
  226,917
  248,508
  271,004
  294,418
  318,768
  344,081
  370,386
  397,722
  426,131
  455,661
  486,365
  518,303
  551,538
  586,139
Total liabilities, $m
  16,908
  21,438
  27,276
  34,097
  41,942
  50,836
  60,792
  71,811
  83,886
  96,999
  111,131
  126,259
  142,358
  159,407
  177,385
  196,278
  216,074
  236,767
  258,358
  280,854
  304,268
  328,618
  353,931
  380,236
  407,572
  435,981
  465,511
  496,215
  528,153
  561,388
  595,989
Total equity, $m
  10,736
  11,544
  14,687
  18,360
  22,584
  27,373
  32,734
  38,668
  45,169
  52,230
  59,840
  67,985
  76,654
  85,834
  95,515
  105,688
  116,347
  127,490
  139,116
  151,229
  163,837
  176,948
  190,578
  204,743
  219,462
  234,759
  250,660
  267,193
  284,390
  302,286
  320,917
Total liabilities and equity, $m
  27,644
  32,982
  41,963
  52,457
  64,526
  78,209
  93,526
  110,479
  129,055
  149,229
  170,971
  194,244
  219,012
  245,241
  272,900
  301,966
  332,421
  364,257
  397,474
  432,083
  468,105
  505,566
  544,509
  584,979
  627,034
  670,740
  716,171
  763,408
  812,543
  863,674
  916,906
Debt-to-equity ratio
  0.658
  1.000
  1.190
  1.320
  1.420
  1.500
  1.560
  1.600
  1.640
  1.670
  1.690
  1.710
  1.730
  1.740
  1.750
  1.760
  1.770
  1.780
  1.790
  1.790
  1.800
  1.800
  1.810
  1.810
  1.810
  1.820
  1.820
  1.820
  1.820
  1.820
  1.830
Adjusted equity ratio
  0.335
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,071
  1,845
  2,296
  2,819
  3,418
  4,092
  4,844
  5,671
  6,575
  7,552
  8,603
  9,915
  11,105
  12,363
  13,686
  15,075
  16,529
  18,046
  19,629
  21,276
  22,990
  24,772
  26,624
  28,549
  30,549
  32,627
  34,787
  37,034
  39,371
  41,804
  44,337
Depreciation, amort., depletion, $m
  695
  950
  1,137
  1,355
  1,607
  1,892
  2,211
  2,564
  2,951
  3,371
  3,824
  4,046
  4,562
  5,108
  5,684
  6,289
  6,924
  7,587
  8,278
  8,999
  9,750
  10,530
  11,341
  12,184
  13,060
  13,970
  14,916
  15,900
  16,923
  17,988
  19,097
Funds from operations, $m
  3,069
  2,794
  3,433
  4,174
  5,024
  5,984
  7,054
  8,235
  9,525
  10,923
  12,426
  13,961
  15,667
  17,471
  19,370
  21,365
  23,452
  25,633
  27,907
  30,276
  32,740
  35,302
  37,965
  40,733
  43,608
  46,597
  49,703
  52,934
  56,295
  59,793
  63,434
Change in working capital, $m
  529
  -72
  -86
  -100
  -115
  -131
  -146
  -162
  -177
  -193
  -208
  -222
  -237
  -251
  -264
  -278
  -291
  -304
  -317
  -331
  -344
  -358
  -372
  -387
  -402
  -417
  -434
  -451
  -469
  -488
  -508
Cash from operations, $m
  2,540
  2,867
  3,518
  4,275
  5,139
  6,114
  7,200
  8,397
  9,703
  11,116
  12,634
  14,183
  15,903
  17,721
  19,635
  21,642
  23,743
  25,937
  28,225
  30,606
  33,084
  35,660
  38,337
  41,119
  44,010
  47,014
  50,137
  53,385
  56,764
  60,281
  63,943
Maintenance CAPEX, $m
  0
  -530
  -687
  -874
  -1,093
  -1,344
  -1,629
  -1,948
  -2,301
  -2,688
  -3,108
  -3,561
  -4,046
  -4,562
  -5,108
  -5,684
  -6,289
  -6,924
  -7,587
  -8,278
  -8,999
  -9,750
  -10,530
  -11,341
  -12,184
  -13,060
  -13,970
  -14,916
  -15,900
  -16,923
  -17,988
New CAPEX, $m
  -1,084
  -2,091
  -2,488
  -2,907
  -3,343
  -3,790
  -4,243
  -4,696
  -5,146
  -5,589
  -6,023
  -6,447
  -6,861
  -7,266
  -7,662
  -8,051
  -8,436
  -8,819
  -9,202
  -9,587
  -9,978
  -10,377
  -10,787
  -11,211
  -11,650
  -12,107
  -12,585
  -13,085
  -13,611
  -14,164
  -14,746
Cash from investing activities, $m
  -1,958
  -2,621
  -3,175
  -3,781
  -4,436
  -5,134
  -5,872
  -6,644
  -7,447
  -8,277
  -9,131
  -10,008
  -10,907
  -11,828
  -12,770
  -13,735
  -14,725
  -15,743
  -16,789
  -17,865
  -18,977
  -20,127
  -21,317
  -22,552
  -23,834
  -25,167
  -26,555
  -28,001
  -29,511
  -31,087
  -32,734
Free cash flow, $m
  582
  246
  344
  494
  704
  980
  1,329
  1,753
  2,256
  2,840
  3,503
  4,175
  4,997
  5,894
  6,865
  7,907
  9,018
  10,195
  11,436
  12,741
  14,107
  15,533
  17,020
  18,568
  20,177
  21,848
  23,583
  25,384
  27,253
  29,194
  31,209
Issuance/(repayment) of debt, $m
  1,073
  4,902
  5,838
  6,821
  7,844
  8,894
  9,956
  11,019
  12,074
  13,113
  14,132
  15,128
  16,099
  17,049
  17,979
  18,893
  19,796
  20,693
  21,591
  22,496
  23,414
  24,350
  25,312
  26,305
  27,336
  28,409
  29,530
  30,705
  31,938
  33,235
  34,601
Issuance/(repurchase) of shares, $m
  0
  807
  848
  854
  806
  697
  517
  262
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  676
  5,709
  6,686
  7,675
  8,650
  9,591
  10,473
  11,281
  12,074
  13,113
  14,132
  15,128
  16,099
  17,049
  17,979
  18,893
  19,796
  20,693
  21,591
  22,496
  23,414
  24,350
  25,312
  26,305
  27,336
  28,409
  29,530
  30,705
  31,938
  33,235
  34,601
Total cash flow (excl. dividends), $m
  1,332
  5,955
  7,029
  8,168
  9,355
  10,571
  11,802
  13,035
  14,331
  15,953
  17,635
  19,303
  21,096
  22,943
  24,843
  26,800
  28,813
  30,888
  33,028
  35,237
  37,520
  39,884
  42,332
  44,873
  47,512
  50,256
  53,113
  56,088
  59,191
  62,429
  65,810
Retained Cash Flow (-), $m
  -1,539
  -2,652
  -3,143
  -3,673
  -4,224
  -4,789
  -5,361
  -5,934
  -6,502
  -7,061
  -7,610
  -8,146
  -8,669
  -9,180
  -9,681
  -10,173
  -10,659
  -11,143
  -11,626
  -12,113
  -12,607
  -13,112
  -13,630
  -14,164
  -14,719
  -15,297
  -15,901
  -16,533
  -17,197
  -17,896
  -18,631
Prev. year cash balance distribution, $m
 
  1,844
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  5,148
  3,885
  4,496
  5,131
  5,782
  6,441
  7,101
  7,829
  8,892
  10,026
  11,157
  12,427
  13,763
  15,163
  16,627
  18,154
  19,746
  21,402
  23,124
  24,913
  26,772
  28,703
  30,709
  32,793
  34,959
  37,212
  39,555
  41,994
  44,533
  47,179
Discount rate, %
 
  5.10
  5.36
  5.62
  5.90
  6.20
  6.51
  6.83
  7.18
  7.54
  7.91
  8.31
  8.72
  9.16
  9.62
  10.10
  10.60
  11.13
  11.69
  12.27
  12.89
  13.53
  14.21
  14.92
  15.66
  16.45
  17.27
  18.13
  19.04
  19.99
  20.99
PV of cash for distribution, $m
 
  4,898
  3,500
  3,815
  4,079
  4,280
  4,412
  4,470
  4,497
  4,624
  4,682
  4,638
  4,555
  4,405
  4,193
  3,928
  3,620
  3,282
  2,926
  2,563
  2,206
  1,863
  1,544
  1,254
  998
  777
  591
  440
  319
  226
  155
Current shareholders' claim on cash, %
  100
  97.1
  94.8
  93.0
  91.7
  90.8
  90.2
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0
  90.0

Fomento Económico Mexicano, S.A.B. de C.V., through its subsidiaries, operates as a bottler of Coca-Cola trademark beverages and a chain of small-format stores. It produces, markets, sells, and distributes Coca-Cola trademark beverages, including sparkling beverages, such as colas and flavored sparkling beverages; waters; and still beverages comprising juice drinks, coffee, teas, milk, value-added dairy products, and isotonic drinks. The company also operates a chain of small-format stores under the OXXO brand in Mexico, as well as operates other small-format stores, which include soft discount stores with a focus on perishables and liquor stores. As of December 31, 2015, it operated 14,061 OXXO stores, of which 14,015 are located in Mexico and 46 stores are located in Bogota, Colombia. In addition, the company offers various logistics and vehicle maintenance services to clients in the beverages, consumer products, and retail industries in Mexico, Brazil, Colombia, Panama, Costa Rica, Nicaragua, and Peru; and vertical and horizontal commercial refrigerators for the soft drink, beer, and food industries. The company markets its products through retail outlets, such as wholesale supermarkets, discount stores, and convenience stores that sell fast-moving consumer goods in Mexico, Central America, Colombia, Venezuela, Brazil, Argentina, and the Philippines. The company was founded in 1890 and is headquartered in Monterrey, Mexico.

FINANCIAL RATIOS  of  Fomento Economico Mexicano ADR (FMX)

Valuation Ratios
P/E Ratio 1686.5
Price to Sales 89.2
Price to Book 168.2
Price to Tangible Book
Price to Cash Flow 711.1
Price to Free Cash Flow 1240.6
Growth Rates
Sales Growth Rate 28.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 15.9%
Cap. Spend. - 3 Yr. Gr. Rate 4.2%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 62.3%
Total Debt to Equity 65.8%
Interest Coverage 6
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 5.3%
Return On Total Capital 6.7%
Ret/ On T. Cap. - 3 Yr. Avg. 6.5%
Return On Equity 10.7%
Return On Equity - 3 Yr. Avg. 9.8%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 37.1%
Gross Margin - 3 Yr. Avg. 39.5%
EBITDA Margin 12%
EBITDA Margin - 3 Yr. Avg. 13.1%
Operating Margin 8.3%
Oper. Margin - 3 Yr. Avg. 10.2%
Pre-Tax Margin 7.1%
Pre-Tax Margin - 3 Yr. Avg. 8.1%
Net Profit Margin 5.3%
Net Profit Margin - 3 Yr. Avg. 5.8%
Effective Tax Rate 27.6%
Eff/ Tax Rate - 3 Yr. Avg. 28.5%
Payout Ratio 57%

FMX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FMX stock intrinsic value calculation we used $20242 million for the last fiscal year's total revenue generated by Fomento Economico Mexicano ADR. The default revenue input number comes from 2016 income statement of Fomento Economico Mexicano ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our FMX stock valuation model: a) initial revenue growth rate of 29.7% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.1%, whose default value for FMX is calculated based on our internal credit rating of Fomento Economico Mexicano ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Fomento Economico Mexicano ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of FMX stock the variable cost ratio is equal to 89.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for FMX stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.6% for Fomento Economico Mexicano ADR.

Corporate tax rate of 27% is the nominal tax rate for Fomento Economico Mexicano ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the FMX stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for FMX are equal to 34.8%.

Life of production assets of 13.3 years is the average useful life of capital assets used in Fomento Economico Mexicano ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for FMX is equal to -1.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $10736 million for Fomento Economico Mexicano ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 324.018 million for Fomento Economico Mexicano ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Fomento Economico Mexicano ADR at the current share price and the inputted number of shares is $32.7 billion.

RELATED COMPANIES Price Int.Val. Rating
KOF Coca-Cola Fems 84.87 171.83  str.buy
PEP PepsiCo 119.10 57.05  sell
KO Coca-Cola 46.20 16.80  str.sell
COKE Coca-Cola Bott 213.36 690.33  str.buy

COMPANY NEWS

▶ Fomento Economico posts 2Q profit   [12:29AM  Associated Press]
▶ The 4 Best Dividend Stocks in Mexico   [Jul-24-17 12:59PM  Motley Fool]
▶ Stock Market News for May 01, 2017   [May-01-17 09:56AM  Zacks]
▶ Fomento Economico posts 1Q profit   [10:31AM  Associated Press]
▶ FEMSA Files 2016 SEC Annual Report   [Apr-21-17 05:30PM  Marketwired]
▶ FEMSA Shareholders Approved Ps. 8,636 Million Dividend   [Mar-16-17 05:45PM  Marketwired]
▶ [$$] Femsa: A Global Mexican Play   [Mar-11-17 12:36AM  Barrons.com]
▶ Mexicos FEMSA Posts Mixed Earnings   [Mar-01-17 01:28PM  Investopedia]
▶ Stock Market News for February 28, 2017   [Feb-28-17 10:10AM  Zacks]
▶ Fomento Economico posts 4Q profit   [09:42AM  Associated Press]
▶ Barclay's Top 5 Picks for High Return in 2017   [Dec-12-16 04:25PM  at Investopedia]
▶ What Smart Money Has To Say About Novartis AG (ADR) (NVS)   [Dec-05-16 04:11PM  at Insider Monkey]
▶ Hedge Funds Are Betting On Oracle Corporation (ORCL)   [Dec-01-16 12:50PM  at Insider Monkey]
▶ Why Is The Coca-Cola Co (KO) Bleeding Smart Money?   [Nov-23-16 12:11PM  at Insider Monkey]
▶ Mexico Peso Higher: Clinton Tops Trump In New Poll   [Sep-15-16 10:44AM  at Barrons.com]
▶ Ohio Likes Trump, Mexico Peso Dumped   [Sep-14-16 11:29AM  at Barrons.com]
▶ ELAAX, MALTX, PRLAX: 3 South American Equity Mutual Funds   [Aug-30-16 05:55PM  at Investopedia]
▶ Five Mexican Stocks Hedge Funds Are Bullish On   [Jun-11-16 06:04PM  at Insider Monkey]
▶ FEMSA Comercio Enters Convenience Store Space in Chile   [Jun-06-16 04:35PM  Marketwired]
▶ FEMSA Announces First Quarter 2016 Results   [Apr-28-16 05:10PM  Marketwired]
Stock chart of FMX Financial statements of FMX
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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